As part of an ongoing effort to bring greater transparency to the hidden world of health care costs, a new Minnesota Department of Health (MDH) report finds large swings in prices between hospitals, and also large price differences within a single hospital.

A patient undergoing one of four hospital procedures may pay between two to nearly seven times as much as another patient at the same hospital, according to the MDH report. As shown, this can mean a price difference from about $7,000 to nearly $70,000.

This report, the second in a series, analyzes the prices paid from July 2014 to June 2015 for a set of four common procedures at Minnesota hospitals: spinal fusion surgery, major bowel surgery, appendectomy and removal of uterine fibroids. To make direct comparisons meaningful the analysis looks only at commercially insured patients with minor or moderate clinical complexity.

Prices for the most expensive procedures (spinal fusion surgery and major bowel surgery) varied by three-fold or more within hospitals. For example, prices for a bowel procedure at the most expensive hospital ranged from about $14,500 to $68,800 (a 4.7-fold difference), and prices at the most expensive hospital for spinal fusion ranged from about $27,600 to $80,800 (a 2.9-fold difference). Even the hospitals with the lowest average price exhibited sizable variations in prices.

“This degree of variation shows that the health care market lacks meaningful transparency and a consistent link between cost and prices,” said Health Commissioner Jan Malcolm. “This undermines effective competition and rational pricing of health care services, and contributes to the cost pressure that families and businesses are experiencing. Shedding light on prices is a step in the right direction toward a better functioning market where individuals and employers can play a stronger role as informed consumers.”

This round of research aims to describe different aspects of hospital price variation in Minnesota. The research was not designed to show what is causing the differences within and between hospitals. However, national studies provide some sense of what may be driving price differences. Likely factors include differences in labor markets, operating costs, hospital and patient characteristics, and practice styles.

Preliminary results from the MDH study showed that a substantial amount of the statewide variation in prices – about 36 percent– was related to differences within individual hospitals and was not explained by factors such as severity of illness, length of stay, patients’ age, and certain health benefit characteristics. National researchers suggest that this type of unexplained variation is likely driven by how much market or pricing power health insurers and hospitals have.

“Employers and their employees have the potential to help drive health care system transformation,” said Carolyn Pare, president and CEO of the Minnesota Health Action Group, a coalition of public and private purchasers dedicated to improving health care outcomes and the overall value of health care services. “To successfully fill that role, we need transparency in health care quality and prices. This series of work, which employers helped initiate, is a strong step forward. Ultimately, though, effective transparency has to identify providers.”

The new report, based on commercial payer data only, is the result of employers teaming up with the Minnesota Department of Health to identify new ways to use Minnesota’s All Payer Claims Database (MN APCD) to better understand health care trends across the state.

Pricing data are reported to the MN APCD, which consists of data stripped of private, personal identifiers, from more than 1.1 billion health care transactions coming from private and public payers covering more than 4.3 million people in Minnesota.

The prices in the new report reflect the fees paid to hospitals for the inpatient treatment as well as the professional fees — physician services — received for delivering care. The first report in this series, from January 2018, analyzed a different set of four inpatient procedures and focused just on hospital fees. Neither report lists the names of specific hospitals, as Minnesota law prevents the use of the MN APCD to identify individual hospitals or providers.

“By bringing new evidence to the fore, the data and the analysis help shape our understanding of the health care market in a really critical area,” said Stefan Gildemeister, state health economist and a co-principal investigator of the study. “MN APCD is such an important tool because it fills knowledge gaps critical for policy-making. To date, data analyses have delivered critical insights in chronic disease prevalence and spending, pharmaceutical trends, health system efficiency, opioid prescribing patterns and more.”